The invention disclosed herein generally relates to methods and systems for facilitating competitive virtual trading of securities and/or derivatives.
Currently traders can trade on a variety of exchanges. Traders can buy and sell securities like stocks, bonds, shares of mutual funds, and shares of exchange-traded funds (ETFs), and also can make transactions involving derivatives based on indices, commodities, currencies, and stocks. In many exchanges (like the New York Stock Exchange (NYSE), Nasdaq, Chicago Mercantile Exchange (CME), Euronext, etc.) the trader pays a commission for each transaction. When a trader trades derivatives (like options and futures), the asset is limited in time. In foreign currency platforms, traders execute leveraged transactions on pairs of currencies (spots, forwards and options). The bid and ask quotes arrive from interbank rates and also from information agencies like Reuters and Bloomberg. The trader pays the spread between the bid and ask prices for the asset.
The returns of traders are determined as a function of the absolute results of their transactions. A trader who bought one future contract on the S&P 500 Index through the CME will gain money if the S&P 500 Index rises and, conversely, will lose money if the index fails. The results of the trader will depend on the buying and selling prices of the asset at the respective times when his buy and sell orders were executed, his leverage, and the costs of the transactions. If the trader correctly anticipated a rise in the asset price, he will have a gain on the closing transaction, but if, contrary to his expectation, the price of the purchased asset decreased, the trader will lose money. In the commercial marketplace, the returns of a trader are based on his absolute results against the whole market. The trader executes transactions against other traders who need not be identified to the trader or his broker.
Today a trader cannot compete against the performance of selected other traders on a daily basis and the returns are calculated according to the success of his transactions versus all market participants. Some Internet betting sites enable participants to bet against each other (and not just against the house) on a specific bet (like which NBA basketball team will win in a specific game, or to bet if a financial index such as the Dow Jones Industrial Average will be higher than a certain threshold X on a specific day), but those sites do not enable participants to compete one against each other on a wider basis (such as executing multiple transactions within a defined time period).
There is a need for a system that would enable traders to compete against each other by executing multiple virtual asset transactions within a defined time period, each participant having the same amount of credit at risk for trading at the time when the competition begins and the winnings being allocated at the end of the competition as a function of the respective trading results of the participants.